How to Obtain Forgiveness of Your PPP Loan

all"Forgive Them For They Know Not What They Do"

With the passage of the CARES act Congress gave the Small Business Administration (SBA) and the Treasury a whole bunch of money, which some think was not enough, to distribute to businesses in need of help to survive the COVID-19 impact on their business.  Most of these funds were to encourage employers to retain employees and keep them employed and productive. One of the many programs that came out of these funds is the Payroll Protection Program or PPP. It provides a possibly forgiven loan of up to 10 weeks of average weekly payroll if used on payroll and some rent, utilities, and a few other expenses.

There was a mad rush to apply for these loans due to the possible forgivable nature of them.

Round One ended with many businesses receiving the loans and many more that did not. It included loans to larger small businesses that qualified under the program but were then later publicly shamed for having taken the loan because they had access to capital markets (How dare they apply for and get something that Congress said they could?). Many returned the funds for public relations purposes not for lack of need.

Round Two ended with more small businesses receiving the loans and many more that did not.

With the program, we were given some general guidelines around forgiveness but few specifics. Essentially, successful applicants have been handed a flaming ball of tar and told to hold on to it until they would be given information on how to put it out in the future. To date, we have not received the final guidelines as to how to calculate PPP loan forgiveness. We have been given a set of answers to frequently asked questions that grows by a question or two every couple days but not the final regulations. This has left me and thousands of other accountants starting every answer to a question about the PPP with “Under current understanding…” and ending it with “we will let you know more when we are given more.”

So…under current understanding your PPP loan forgiveness will be:

Amounts paid during the eight weeks after receiving your PPP funds for Payroll Expenses:

• Gross Payroll: Salaries and Wages (not to exceed $100,000/annually per employee)
• Cash tips
• Qualified Group Health Insurance Premiums
• Employer contributions to Retirement
• State and Local taxes imposed on Payroll at the Employer level.
• For self-employed individuals, your payroll is 8 weeks of your average weekly profit the loan was based on. (Essentially 80% of the PPP loan received.)

If Payroll Expenses as described above are equal to or greater than 75% of the total loan proceeds, then you may also include the following other covered expenses in your forgiveness calculation:

• Business Rents
• Business Mortgage Interest
• Business Utilities
• Other Business Interest

You must also retain your headcount and a few other conditions to have any of it forgiven.

It will also be your responsibility to track and prove each expense you are seeking forgiveness for.

Some are suggesting you need a separate bank account to hold these funds, but I don’t believe you do unless you need it to help you track the spend.

Another catch is that under current understanding, the business expenses paid for with forgiven loan proceeds are not deductible meaning your taxable profits go up which also means not-tax free. (The Senate has introduced a bill to change this.)

It is my opinion, humble or not, that if getting the PPP loan was difficult, getting it all forgiven may be even more difficult. I think there will be many PPP loan funds that remain as loans for a variety of reasons including you may not have been able to open your business for part of the eight weeks on record.

If you are not a great record keeper, now would be a good time to reach out to your accountant and engage them to help you track what you will need for forgiveness. 

​We will get back to you when we know more.